Arcelor Mittal CEO addresses challenges in volatile steel market
ArcelorMittal South Africa CEO Kobus Verster highlights the challenges facing the steel industry, including global market pressures, domestic cost imbalances, and the potential closure of the Newcastle plant, urging government intervention.
Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.
By BizNews Reporter
Arcelor Mittal South Africa CEO Kobus Verster recently appeared on BizNews Briefing, hosted by Alec Hogg, to discuss the company's volatile share price and the numerous challenges facing the steel industry. Verster addressed the unexpected fluctuations in Arcelor Mittal's share price and provided insights into the global and domestic steel market's weak performance, which has severely impacted the company's financial health.
Volatility in Share Price
Verster acknowledged the recent volatility in the company's share price, which swung from R1.25 to R2.00, only to drop back to R1.25 within a matter of weeks. While he noted the market's optimism during this period, he admitted that there were no fundamental reasons to support such a spike. "I could not understand where the optimism came from," said Verster, explaining that the company felt compelled to issue a voluntary trading update to provide transparency.
Global Steel Market Struggles
Verster painted a bleak picture of the global steel market, describing it as the weakest it has been since 2015-2016. He highlighted China's role in this downturn, citing the 81 million tonnes of steel China has exported this year alone, which has depressed steel prices worldwide. "China is dumping an enormous amount of steel, which is negatively affecting the global steel market," Verster explained.
To put the figures in perspective, he noted that China produces about half of the world's steel, with global production hovering around 1.8 billion tonnes. China's steel exports are comparable to the entire output of the third-largest steel producer, India. This aggressive dumping has severely hurt markets like South Africa, making it difficult for Arcelor Mittal to remain competitive.
Domestic Challenges and Market Distortions
Domestically, Arcelor Mittal faces additional obstacles, including market distortions caused by government policies and competition. According to Verster, local competitors enjoy up to a 40% cost advantage due to subsidies on scrap input and export taxes. He expressed concern about how the company can compete under such circumstances and called for the elimination of these market distortions.
"The cost base between steel produced from ore and from scrap should be more aligned, but currently, competitors have a substantial advantage," Verster stated. Arcelor Mittal has been pushing for the government to address these imbalances and better protect the domestic steel market.
Structural Issues and Slow Government Response
Verster also discussed Arcelor Mittal's operational challenges, including high transportation costs with Transnet, escalating electricity costs, and the slow implementation of protective duties. While he acknowledged that there had been some positive movement from the government, he noted that progress has been too slow and the impact insufficient to address the deteriorating conditions in the steel market.
Despite this, the company reported a third-quarter operating loss of R466 million, largely due to the struggles at its Newcastle long steel plant. Verster highlighted the urgency of the situation, stating that while Arcelor Mittal had made progress on some issues, the slow pace of change has left the company unable to offset the drop in demand and increased costs.
Potential Closure of Newcastle Plant
One of the most pressing issues for Arcelor Mittal is the future of its Newcastle plant. Verster hinted that without meaningful intervention, the plant might not survive. "We cannot continue to subsidise Eskom, Transnet, and our competitors indefinitely," he warned, adding that if the company is forced to close the plant, it would have a significant ripple effect on the local community.
He expressed deep concern for the impact such a closure would have on the Newcastle community, which relies heavily on the steel plant for economic activity. The potential closure would affect not only the plant's workers but also local businesses and services that depend on the plant's operation.
The Future of Steel in South Africa
During the interview, Hogg raised the suggestion that South Africa should cease domestic steel production and rely on imports instead. Verster dismissed this idea, arguing that South Africa should focus on benefaction of its natural resources rather than becoming a net importer. He warned that abandoning steel production would erode the country's manufacturing capabilities, leading to job losses and reduced industrial capacity.
As the interview concluded, Verster emphasised the importance of government support to keep the domestic steel industry alive. While progress is being made, he stressed that the industry needs more decisive action to level the playing field and ensure the survival of South Africa's steel sector.
In a world where geopolitical tensions can easily disrupt global supply chains, Verster made it clear that protecting domestic steel production is not just about business, but about securing the future of South Africa's manufacturing capabilities and broader economy.
Read also: